JPMorgan Chase & Co. is paying a lower relative cost to borrow than before the financial crisis even after ceding more than a year’s profit to settle disputes linked to faulty mortgages and Bernard Madoff’s Ponzi scheme.
The biggest U.S. bank borrowed $5.25 billion yesterday in an offering that included 10-year securities yielding 1.125 percentage points more than Treasuries, the narrowest spread among similar JPMorgan notes since 2005. The measure, used to gauge creditworthiness, has contracted from 1.33 points a year ago and is the tightest among similar-maturity bonds of Wall Street competitors including Citigroup Inc. and Morgan Stanley.
“They still command some of the best rates among the big universal banks, by all means,” Chris Baker, a credit analyst at Morningstar Inc. in Chicago, said in a telephone interview.
That’s after spending more than $23 billion on legal settlements in 2013, which helped end a three-year streak of record annual earnings even as it led the world in corporate-bond underwriting for the sixth straight year. While litigation expenses may remain elevated in 2014, JPMorgan’s earnings power means any legal issues should be manageable, according to Standard & Poor’s.
JPMorgan’s five-part offering included $1.5 billion portions of five- and 10-year debentures, $500 million of three- year notes, $750 million of floating-rate securities due in 2019 and $1 billion of 4.85%, 30-year bonds paying the same spread as the 10-year allotment, according to data compiled by Bloomberg.
“We have a hard time making sense out of extending 20 years, but picking up no additional spread,” Baker said. The equivalent relative yields may be due to “pension funds needing long-duration assets and having a hard time finding the supply to match up with their longer liabilities,” he said.
The 10-year bonds traded at 99 cents on the dollar to yield 4% at 9:43 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Tasha Pelio, a spokeswoman at New York-based JPMorgan, declined to comment on the bond sale.
JPMorgan’s litigation costs sapped $1.1 billion from fourth-quarter profit of $5.28 billion, down 7.3 percent from a year earlier with the firm paying $2.6 billion to resolve criminal and civil allegations it failed to stop Madoff’s fraud. That brought its legal settlements from the past two years to more than $29 billion.
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